Less than two months after the Federal Communications Commission (FCC) pulled the plug on exclusive contracts between property owners or developers and cable companies, the picture of how the rule affects owners and residents of apartment buildings, condo associations, and co-ops has begun to come into focus.

Under the new rule, property owners and developers are still free to determine how many cable companies they'll allow to enter their property to provide service to residents. However, a common scenario that was a win-win for cable companies and property owners — but not consumers, according to the FCC — is no longer permissible.

Under the old rules, in exchange for the cable company's paying or subsidizing the cost of creating and maintaining cable infrastructure in multifamily buildings, owners and developers signed contracts requiring them to forbid other cable providers to access the property. The FCC's new rule prohibits cable companies from enforcing such agreements.

Cable monopoly?

According to the FCC, the federal body that regulates radio, television, satellite, and cable communications, nearly 30% of Americans live in multifamily buildings. Though the FCC doesn't know how many owners of multifamily buildings had entered into exclusive contracts with cable companies, when those situations occurred residents were unable to order cable service from providers other than the one chosen by the owner.

That, according to the FCC, consumer groups, and telecommunications companies like Verizon, hurt consumers by jacking up the price of cable service and preventing residents from getting discounts through bundled telephone, cable, and high-speed Internet packages.

“Since 1996, cable rates have increased 95% on average because cable companies have enjoyed a virtual monopoly over the market,” says Joel Kelsey, a policy analyst with Consumers Union, a consumer advocacy group in Washington, D.C.

Residents' options also have been limited, says Leora Hochstein, executive director of federal regulatory advocacy for Verizon in Washington, D.C. “If there's an exclusive agreement, consumers can't pick and choose based on price, the number of channels, or service,” she says. “The only way they can switch providers is to move out.”

The FCC adopted the rule banning exclusive cable contracts to foster increased price competition among cable providers and provide residents of multifamily buildings with more choice.

The National Multi Housing Council and the National Apartment Association have filed suit to overturn the rule. “It's clear that the FCC's ban is misguided in that it won't enhance competition or create enhanced resident choice,” says Betsy Feigin Befus, vice president of employment policy and special counsel for the Washington, D.C.-based NMHC.

The real estate groups argue that competition for exclusive contracts results in price competition benefitting residents. They contend that owners and residents receive price breaks on cable service.

In exchange for receiving exclusive contracts, cable providers often subsidize or pay for cable infrastructure. Finally, real estate groups say that allowing many cable firms into buildings is unmanageable. “Apartment properties, depending on their size, demographics, and other factors, often can support only one, maybe two, providers,” says Feigin Befus.

Skirting the ban

The FCC's order has some loopholes. “The rule doesn't govern the behavior of property owners; it governs cable operators, which can't enforce their existing exclusive agreements and create new exclusive agreements,” says Verizon's Hochstein. “Property owners always have the right to tell any cable company it can't come onto their property.”

What if a tenant wants to purchase another cable provider's service? “That's a big question,” says the Consumers Union's Kelsey, who offers a plumbing analogy. “If you're a tenant, and you're having trouble with the plumbing, some landlords require that you call only them, not a plumber,” he explains. “In other apartment buildings, the landlord may allow you to call a plumber directly. That's especially true in condo situations. A lot will depend on residents' contractual relationship with their landlord or developer.”

It's uncertain whether the apartment industry can win its argument over the cable controversy. No decision is likely before fall, which for now leaves property owners in limbo.

G.M. Filisko is a reporter and attorney based in Chicago who writes regularly on legal and real estate issues. She can be contacted at gabifil@rcn.com.